A Failed Bond Swap Deal, Low Oil Prices Could Signal the End for PDVSA

Venezuela’s PDVSA is in the hot seat today, with only one business day left for investors to take or leave its $5.3 billion 2017 bond proposal to push new notes back into 2020.

The likelihood of investors accepting this deal depends on how flexible the floundering Venezuelan oil company is at the hypothetical negotiating table in the final hours, according to two analysts.

“If the swap doesn't happen, they're in big trouble for next year," said Francisco Monaldi, Latin American energy policy fellow at the Baker Institute for Public Policy. "I think they're really worried about that."

Monaldi added that PDVSA was hoping that the swap—along with oil prices—would rescue it from the precarious position it is now in, but neither remedy is looking too hopeful at this point.

Raul Gallegos, Control Risks senior analyst, said of the swap deal that the initial terms were not enough to lure investors, and that the adjusted terms were not “doing much for investors” either, adding that if oil prices ticked up a bit, it might be enough to get them through next year.

Despite the hard road ahead, the analysts believe that it is possible for PDVSA to “still scrape through” next year without default.

Venezuela’s crude production has been on almost a steady decline since 2014, according to secondary sources reported by OPEC—from an average of 2.36 million barrels per day for all of 2014, to an average of 2.09 million barrels per day in September 2016.

Venezuela has been one of the most vocal advocates for an OPEC production cut, which may be the only thing that could save PDVSA—and Venezuela as a whole—from the brink of disaster.